UK: A Chain Reaction: Applying Blockchain To The Food Supply Chain

Last Updated: 26 October 2018
Article by Henrietta Baker

In our global world, it is essential that food moves quickly and cost-effectively. This requires a large number of stakeholders to enter into a high volume of simple transactions. Increasingly, this combination of market forces and practical pressures is leading to, on one side of the scale, accidental error and, on the other, fraud throughout the supply chain. Recent history is chequered with scandals ranging from contaminated food to illegally-produced and falsely-sold products resulting in risks to health, reputation and balance sheets.

In such an environment, it is vital that products can be traced to their source quickly to ensure human safety and limit reputational and financial damage. Currently, each participant in the food supply chain keeps a record of the transactions to which it is a party. Because each party has a counterparty, mutual audit of these transactions achieves some level of traceability and accountability in the supply chain. But is it enough?

Generally, each party contracts only with those directly above or below it in the supply chain. This means the full nature and extent of the chain is often obscured, even to those that are a part of it.

Recently, the insecticide fipronil was potentially illegally used throughout Europe and Asia and some 700,000 contaminated chicken eggs reached shelves in the UK. Under the current system, if there is an issue such as this the only option is total lockdown until it can be fully investigated. The quantifiable result in this case was hundreds of farms being shut throughout Europe, which disrupted the entire egg supply chain at great cost. The goal has to be a mechanism that delivers a swift, proportional response that can deal with the issue before there is a public incident and the resulting erosion of customer confidence and brand damage.

The blockchain proposition

Blockchain proposes an alternative where all parties in the supply chain work from one shared set of records. This shared record is achieved by way of a transparent, decentralised ledger of the transactions at each step of the supply chain, which can be viewed by any party that has been granted access. As an unbroken chain of individual, time-stamped, blocks it acts as a single point of reference for all those with access. This would allow buyers, sellers and desirable third parties like banks, regulators or investigatory bodies to view the records where necessary. Amendments must be validated by the entire network and can be used to ensure the accuracy and reliability of the chain. Once validated, a change to one transaction in one block causes a domino effect of updates throughout the chain.

In this way, blockchain could function as a kind of digital lubricant that facilitates the immediate flow of genuine, verified, information throughout the food supply chain.

What problems could it solve?

By recording each transaction at every step of the supply chain, a product can be traced to its point of origin in seconds. On 12 June 2018, the Journal of the British Blockchain Association (JBBA) reported that, in the US, Walmart recorded that it could trace a mango from store to farm in around seven days using traditional methods. Using blockchain, it took 2.2 seconds1. Clearly, blockchain provides the potential for an immediate, verifiable and comprehensive record of an item's journey without response times or human error.

Safety

Consumer safety is key. By using blockchain to create direct accountability throughout the supply chain, contaminated or illegal produce can be rooted out immediately at source. In June 2017, across the US, 173 cases of salmonellosis – including 57 hospitalisations and even a death – were linked to contaminated papayas. Using traditional methods, it took three weeks to trace the source to a farm in Mexico.

Using blockchain to cut this time to seconds could have reduced harm in a measurable way. By processing a product recall in minutes rather than days, fewer consumers would have been harmed and brand damage would have been limited.

Arguably, widespread use of this technology could also deter unscrupulous market participants and so reduce the number of serious food safety issues.

Efficiency

Blockchain could have day-to-day benefits to the food supply chain too. Digital tracking removes the need for inefficient and error-prone analogue tracking systems. A centralised and verified recording system would do away with painstaking record-keeping and auditing, thereby potentially cutting costs and saving manual input and checking time.

Increased visibility throughout the supply process could also give an overview of unknown, entrenched, inefficiencies. Remedying these inefficiencies could reduce product waste and save money. Remotely and immediately tracing everything from a batch's expiration date to time spent in each location could provide new insights and associated benefits.

Consumer confidence

The immediacy and reliability of the information harnessed by blockchain can be used to demonstrate authenticity and build consumer confidence. In a verifiable way, consumers can know how their food is sustainable, vegan, organic or locally sourced. In a competitive market this could be key in brand preservation and development.

Is it as easy as that?

Any change comes with risks and overhauling the mechanics of such a long-established system is no exception. One of the biggest challenges will be for parties that are used to dealing with the members of the supply chain that are directly above or below them adjusting to, and ensuring there are appropriate processes to enable, the multi-party approach that deploying blockchain effectively could require. In particular, consideration needs to be given as to how best to create and formalise strategic partnerships and agreements to utilise blockchain so that the potential benefits can be maximised for all parties.

Blockchain in itself, with relatively new and developing uses, can introduce additional complexities and considerations. Some of the key areas for consideration are:

  • ensuring third party intellectual property is not infringed and proprietary intellectual property is sufficiently protected;
  • ensuring data protection requirements and confidentiality controls are met. Businesses can face heavy penalties for non-compliance with rules on the processing of (broadly defined) "personal data". Blockchain applications that fall within the scope of the GDPR – perhaps particularly those based in the EU or that extend to individual EU consumers – will have to deal with the fact that GDPR was designed with a centralised network, rather than decentralised networks, in mind; and
  • ensuring transparent pricing and dominant platforms do not inadvertently create competition issues. As explored above, one of the potential attractions of blockchain for the food and drink industry is greater transparency, but participants will need to ensure such transparency does not include commercially sensitive information in a way that could dampen competition or cause legal problems. Likewise, if blockchain platforms come to account for a substantial part of the market there will be either a single dominant platform or a number of competing ones. Any platform or group of platforms occupying a dominant position will need to ensure that there is nothing in its structure or behaviour that tends towards abuse of its market power in relation to either customers or competitors.

Many of these areas will need to be addressed through a mix of legal, operational and technical solutions, which, if not considered and addressed appropriately, may result in any reputational or financial benefits being negated. This does not by any means reduce the utility of blockchain in trying to address the challenges faced by the industry and blockchain is already being used successfully by many in the industry in a variety of ways. But, as with anything, a proper understanding and considered approach is required to ensure the reality can live up to the hype.

Footnotes

1 https://jbba.scholasticahq.com/article/3712-food-traceability-on-blockchain-walmart-s-pork-and-mango-pilots-with-ibm).

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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